The US should significantly reform the federal system for financing physician training and residency programs to ensure that the public's $15 billion annual investment is producing the doctors that the nation needs, says a new report.

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The U.S. should significantly reform the federal system for financing physician training and residency programs to ensure that the public's $15 billion annual investment is producing the doctors that the nation needs, says a new report by the Institute of Medicine. Current financing -- provided largely through Medicare -- requires little accountability, allocates funds independent of workforce needs or educational outcomes, and offers insufficient opportunities to train physicians in the health care settings used by most Americans, the report says.

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All medical school graduates must complete at least one year of "graduate medical education," or residency training, to become licensed to practice. Board certification in a specialty often requires three to seven years of training. Medicare and Medicaid provide more than 90 percent of federal funding to support physician residency training, with Medicare providing $9.7 billion per year.

Public financing of this training should remain at its current level for now, but Congress should amend Medicare laws and regulations to move to an accountable, modernized financing system over the next decade that rewards performance and spurs innovation, said the committee that wrote the report. Continued Medicare funding should be contingent on its demonstrated value and contribution to the nation's health needs. Although public funding also comes from other federal and state sources, the committee focused primarily on Medicare because as the largest funder, it provides the most leverage.

"America's health care system is undergoing profound change as a result of new technologies, and the recent implementation of the Affordable Care Act will further increase the focus on primary and preventive care," said Gail Wilensky, co-chair of the committee, economist and senior fellow at Project HOPE, and former administrator of the Centers for Medicare and Medicaid Services. "It's time to modernize how graduate medical education is financed so that physicians are trained to meet today's needs for high-quality, patient-centered, affordable health care."

For decades, teaching hospitals have received the majority of Medicare's funding for physician training, and these hospitals control how the funding is spent. Funds are distributed through complicated formulas linked to the volume of Medicare patients treated. The funding formulas discourage training at clinics or community-based settings where most people now seek care, including children's hospitals and other institutions that care for non-elderly patients. Several surveys indicate that recently trained physicians in some specialties have difficulty performing simple office-based procedures or managing routine conditions, the report says.

Lack of research makes basic questions about the costs, effectiveness, or outcomes of the training programs "unanswerable," the committee said, and teaching hospitals are only required to report data used to calculate funding amounts. Physician training programs must meet accreditation and certification standards, but antitrust and fair trade prohibitions preclude accreditors from addressing broader national objectives such as the makeup of the physician workforce or the geographic distribution of resources.

The mix of available physician training slots may be more driven by the needs or priorities of individual teaching hospitals rather than U.S. health care needs, the report says. Between 2003 and 2013, for example, there was a disproportionate increase of physicians being trained as specialists despite a greater demand for generalists. Training opportunities are highly concentrated in specific geographic regions and urban areas, and the training system is not increasing the number of physicians willing to locate to rural areas or treat other underserved populations.

Some stakeholders warn of a looming physician shortage and advocate for additional Medicare funding for residency and fellowship slots, but such increases would do little to ensure a proper balance of specialties or adequate staffing of changing care settings, particularly among different geographic regions. The report also notes that residency training has grown more than 17 percent between 2002 and 2012 even without additional government funding.

Instead, Medicare funding for physician training should remain at its current level, but to ensure strategic, accountable investments, the U.S. Department of Health and Human Services should establish a two-part governance infrastructure, the report says. A Graduate Medical Education Policy Council -- housed within the HHS Secretary's Office -- should oversee policy and decision making, and an office within the Centers for Medicare and Medicaid Services should oversee fund distribution. Medicare support should be provided through two distinct funds -- an operational fund to finance ongoing residency training activities and a transformational fund to finance new training slots where needed, provide technical support, and support much needed research and innovative pilot programs.

To encourage training at a variety of sites, funds should be distributed directly to the organizations that sponsor physician training programs including hospitals, clinics, and universities, and the payment methodology should be replaced with a single national, per-resident amount. Because careful planning will be required to reform such a complex system and avoid harm, the committee suggested a 10-year transition period to fully implement its recommendations, followed by a reassessment of the need for continuing Medicare funding.

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